Petroecuador (Ecuador) and Sinopec (China) Oil Joint Venture

Petroecuador (Ecuador) and Sinopec (China) Oil Joint Venture

Petroecuador and Sinopec agreed to create a Joint Venture that was supposed to be a big opportunity for both, the Latin American and the Asian country. These two companies are different in many ways, especially in the size of their profitability and technology development. Sinopec International Petroleum belongs to Sinopec Corp. , which is one of the largest integrated energy and chemical companies in China. It business mainly covers oil and gas activities.

It is China’s largest producer and supplier of refined oil products by annual volume processed and major petrochemical products and its second largest crude oil producer, following Petrochina. In 2007 it was ranked in the Top 500 Enterprises of China and in 2009, it was ranked in the 9th place in Fortune Global 500 and in 2010 in the 7th place (first Chinese corporation to place itself in the top ten). Sinopec reported in the first half of 2010 increased profits of 6. 7% (35. 46 billion yuan). Petroecuador is the national oil company of Ecuador.

This state-owned company operates three different divisions. The first is for exploration and extraction, the second is for refinery operations and the last one is for transportation and marketing of the refined products to the internal market of the country. It owns three large refineries in Esmeraldas, La Libertad and Shushufindi, each with a capacity of 110,000 bpd, 45,000 bpd and 20,000 bpd respectively. The production of Petroecuador ended in 2010 with a growth rate of 2. 4%. We can see by the difference of the growth rates, that Siponec has the power in the economic aspect.

China is one of the biggest economies in the world nowadays and if Siponec y is one of the most important oil companies, that demonstrates that there’s no equity in power. The goals of these countries are similar and different en many ways. To start, Ecuador is in the search of foreign investment and with this joint venture is searching for a one billion dollars investment to explore and exploit de Bloc 42, which is located in the eastern part of the country called Pastaza.

Other goals for this country are a donation of 1. million dollars, two lines of credit, one of them to buy Chinese military planes for the air force of Ecuador. It is curious to find in the goals a donation, so it would be interesting to find out a deep explanation for this situation. In the other hand, China is searching with this joint venture an access to the Andean nation, which in recent years has become a magnet for China. This Bloc includes two oilfields with reserves of 120. 1 million barrels of heavy crude that would help to satisfy the increasing demand of these products in China.

One the most important elements in deciding how profitable and advantageous is the Joint Venture is the alternative of other partner for a similar and feasible negotiation. For China, the options can be a greater that for Ecuador, because Siponec is the company with the investment power. First it would be important to determine if Sinopec is interested in the Latin America geographical sector. In order of production, the Latin-American oil supplier countries are Venezuela, Mexico, Brazil, Argentina, Ecuador and Colombia.

Sinopec has realistic alternative with these other three oil supplier countries (Mexico stays out of the options) where it can invest for the oil extraction. Ecuador, on the contrary doesn’t has these advantages because is a poor country and even it has the natural resource, it lacks of the technology and economic development to benefit from it. Even though, Petroecuador could count on Petrochina as a possible alternative, because of the already existing relationship between this two companies.

Petroecuador and Petrochina signed a contract that guaranteed a sell of 2880 million oil barrels for China to be delivered in 2011 in exchange of a billion dollars in anticipation. This negotiation demonstrates an already existing relationship that could facilitate future negotiations or investments. For Ecuador, the indirect actor in this situation is the assessor of the president. The president is the one taking the decisions, but he has a person of trust that knows about the area and can give reasonable and appropriate advises. The United States and the small intern governments of Ecuador can be considered as interested observers.

The United States is interested in this because in the last years the countries of Latin America has been doing what the United States asked them to do and they were in some level their servants because of the power and the dependency they had o the big supremacy. The United States won’t be please to realize that a new emerging powerful economy is entering in those places where they had a main power. The small governments in Ecuador are also interested observers; because owing to the fact that Petroecuador is a state-owned company, the profits it gains are suppose to be redistribute to the country in shape of public works.

The process of the negotiation consisted in meetings between the minister of non-renewable natural resources of Ecuador and about twenty Chinese business representatives of Sinopec in Quito, the capital of Ecuador. The purposes of these meetings were to determinate the common goals and the outcome of the negotiation for each party. This agreement was signed when the chair of he National Committee of the Chinese Political Consultative Conference, Jia Qinglinf visited Quito. In this meeting the President, Rafael Correa was present to give the authorization to the agreement.

The results of the negotiation were a Chinese investment of one billion dollars for exploration and exploitation of the Bloc 42 in Pastaza. Petroecuador holds the 60% stake of the joint venture and Sinopec with the 40% that remains. It also included a donation of 1. 4 million dollars and the two lines of credit. One of them for 2. 9 million dollars to be paid in ten years and the second for 438 million dollars to buy the Chinese military planes to be used in the Ecuador’s air forces. There were not found record of influence of different national cultures for this negotiation.

Even though the negotiators are from two countries with completely different cultures and customs, this type of negotiations involve huge amounts of money and that makes culture less relevant.